## ppea2023038 — EXECUTIVE SUMMARY

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### INTRODUCTION
- Public debt transparency can provide significant benefits to borrowers and creditors.
- Enhancing transparency requires closing significant country data gaps and addressing adverse incentives.
- This Background Paper covers:
  - Empirical evidence of benefits of public debt transparency.
  - Sound practices in public debt management that promote transparency.
  - Review of international data standards and public debt databases.
- Date: June 22, 2023

### EMPIRICAL EVIDENCE OF BENEFITS OF PUBLIC DEBT TRANSPARENCY
- Better data dissemination practices lower financing costs:
  - Subscription to the Special Data Dissemination Standard (SDDS) is associated with a 10–14 percent reduction in the JP Morgan EMBIG sovereign spread index in the quarters following subscription.
  - Publication of data by e-GDDS participants via a National Summary Data Page (NSDP) is associated with a 4–6 percent reduction in the JP Morgan EMBIG sovereign spread index in the quarters following implementation.
  - These favorable effects are more pronounced in countries with relatively weaker governance.
- Public debt transparency promotes a diversified investor base:
  - Improvement in public debt transparency (IIF ranking) is closely linked to reductions in investor base concentration measured by HHI, CR, THI, and ECI.
  - In some cases, a unit improvement in public debt transparency is associated with a 2.5 - 7.3 percent reduction in investor base concentration.
  - Examples:
    - Brazil: domestic currency stock 95 percent of total; average time to maturity 4 years.
    - Hungary: domestic currency stock 80 percent of total; average time to maturity 5 years.
  - Recommended disclosures for sovereigns borrowing regularly from international markets include regular publications of:
    - Debt management strategy (DMS)
    - Annual borrowing plan (ABP)
    - Debt management report
    - Investor presentations
    - Debt bulletins
    - Issuance calendar
    - Debt statistics
  - Organizational and legal documents (borrowing powers, governance framework, institutional structure) should also be publicly available.

### SOUND PRACTICES IN PUBLIC DEBT MANAGEMENT PROMOTING TRANSPARENCY
- Transparency and accountability strengthen credibility and mitigate investor uncertainty in normal and crisis times.
- Key channels to enhance transparency:
  - Legal framework
  - Overall fiscal framework
  - Institutional arrangements
  - Organizational structure
  - Operating framework
  - Management information systems
- Legal and control measures:
  - Borrowing authority commonly subject to controls and transparency safeguards (e.g., legal restrictions on sources, purposes, debt ceilings, annual borrowing resolution).
  - Legal obligations should include regular submission of public debt statistics and annual publication of DMS, ABP, and report on previous year’s public debt management operations with evaluations.
  - Periodic “in-year” public debt statistics should include: debt position, explicit contingent liabilities, portfolio composition, risk indicators, terms and conditions on new borrowings, auction results, collateral, and fees.
  - Disclosure of new borrowings can be catalogued via a National Gazette or Council of Ministers’ legal documents for long-term record-keeping and cross-reference.
- Audit and oversight:
  - Public disclosure of external audit reviews by the supreme audit institution strengthens accountability.
  - Audited annual financial statements are the principal means for reporting to the legislature on debt position; financial compliance audits examine reliability and integrity of reported indebtedness and adherence to laws and regulations.
- Institutional arrangements and roles:
  - Transparent allocation of mandates among the public debt management office, ministry of finance, and central bank reduces conflicts between debt management and fiscal/monetary policy.
  - Clarity on roles and instruments supports operational independence for public debt managers while ensuring internal controls.
- Organizational structure and communication:
  - Consolidation of public debt management functions in a public debt management office (DMO) can enhance efficiency and timely, comprehensive reporting.
  - Establishing a sovereign investor relations office promotes transparency via investor-friendly dissemination and stakeholder engagement.
  - Where responsibilities are dispersed, coordinated reporting and a middle office to monitor overall public debt portfolio are advisable.
- Coverage and reporting of contingent liabilities:
  - Requesting fiscal reports from the entire public sector, including corporations controlled by government direction on spending or borrowing, reduces incentives for off-budget activity.
  - Legal powers should enable ministries of finance, public debt managers, central banks, or statistical agencies to obtain debt and guarantee information from subnational governments and other public sector entities to publish consolidated public sector debt positions regularly.

### Debt Management Information System (DMIS): core functionalities and integrity
- DMIS should capture the creation of a debt instrument including commitments and any enhancements or cancellations.
- DMIS should cover all relevant cash flows across the “loan cycle”: disbursements, prepayment or buybacks, debt service payments, fees, exchanges, and arrears.
- Organizational separation is required between the front office that records the initial debt creation and the back office that confirms the debt liability to ensure a high degree of integrity based on strong internal controls.
- Straight-through-processing capabilities of the DMIS that allow for automatic settlement, payment and registry of debt related transactions further mitigate scope for operational risks.
- DMIS should be fully integrated with the government’s accounting system to ensure consistency between public debt statistics and fiscal accounts.

### International statistical standards for public debt
- Main international standards: Government Finance Statistics Manual (GFSM), External Debt Statistics (EDS): Guide for Compilers and Users, 2013, and Public Sector Debt Statistics (PSDS) Guide for Compilers and Users.
- Frameworks are derived from the System of National Accounts 2008 (2008 SNA) and Balance of Payments and International Investment Position Manual (BPM6).
- For external public debt, the EDS/BPM6 methodology: external debt includes all liabilities as defined in the SNA 2008 (excluding equity liabilities and investment fund shares, and financial derivatives and employee stock options) that are owed to non-residents; the total amount of such liabilities is presented as the gross external debt position.
- External government (public) debt as reported in the EDS will conceptually be the same as external government or public debt reported in GFS/PSDS.
- Metadata should specify valuation and coverage of debt instruments as well as information on country specific data sources and compilation practices.
- PSDS Guide and GFS Manual provide methodology for reporting domestic public debt.
- Summary of provisions in international standards (selected items):
  - Debt Data: Monthly/quarterly reports on outstanding debt stock; composition by currency denomination, maturity, and interest rate; domestic and external debt statistics.
  - Fiscal reports: balance sheet containing all debt and liabilities; summary table with gross debt at nominal and market value by type of instrument, original and remaining maturity, currency, type of interest rate, residency of creditor.
  - Memorandum tables could present: Net debt; Arrears by type of arrear and type of debt instrument; Reconciliation between opening and closing stock positions; Publicly guaranteed debt by maturity and debt type; Summary of explicit contingent liabilities and net obligations for future social security benefits.
  - Disclosure of aggregate information: information supplied by entities outside CG will not be separately disclosed and will only be published in the form of statistical aggregates (except explicit permission).
  - EDS 2013 encourages additional data on remaining maturity, market valuation (or nominal valuation), type of creditor, currency structure, future debt service of the external debt, and other attributes of external debt.
- Institutional coverage tiers in standards:
  - Basic practice: Central Government / Central government.
  - Good practice: General government; liabilities beyond main financial obligations.
  - Advanced practice: All Public Sector, including public corporations and by subsector; presentation for public sector and publicly guaranteed debt.
- Debt instrument coverage:
  - Basic practice: Main financial obligations; all debt—securities and loans.
  - Good/Advanced practice: Liabilities including debt instruments and other contractual liabilities (trade payables, lease contracts, financial liabilities related to PPPs, equity of public corporations, liabilities from insurance/pension/standardized guarantee schemes).

### Public debt databases: coverage and characteristics
- There are at least fifteen publicly available databases for public debt data.
- Some databases focus explicitly on debt (e.g., Quarterly Public Sector Debt—QPSD); others have government debt series (e.g., GFS and IFS).
- Some databases provide partial information:
  - CPIS: bilateral cross-country exposures for portfolio securities but not loans and no domestic component.
  - MFS: debt held by domestic financial sector.
- Two databases are creditor-reported: BIS Locational Banking Statistics and OECD Creditor Reporting System.
- Key observations:
  - Public debt data are fragmented across databases and across institutions (the Fund, World Bank, other IFIs).
  - While nearly all databases aim to have universal country coverage, actual availability of data falls short of this.
  - About half of the databases cover total government debt—both external and domestic, while the remaining half focuses only on government external debt.
  - In most cases, the databases aim to cover all levels of government.
  - QPSD is the most comprehensive public debt database but does not include a composition by creditor type.
  - Most databases include breakdown of public debt data by instrument, following the PSDS guide, but not always (for example, GFS includes only debt securities and loans).
  - Breakdown by creditor is requested in more than half of the databases, but definitions vary and availability of data is limited.
  - The World Bank’s IDS database is the most comprehensive database of long-term, public external debt with breakdowns of aggregate external debt data by individual creditor; data are sourced from the loan-level data collected in the World Bank’s DRS. Aggregated data including the stock of public external debt and debt service data by creditor type and by individual creditor countries are published. Information on average commitments and average loan terms by creditor type and creditor country for each individual debtor country and debtor type is published.
  - There is no single database that provides data on total public (general government) debt for all countries with desired breakdowns; differences in coverage and concepts and variety of reporting frameworks can lead to inconsistencies across databases along with duplication of effort for countries reporting to these databases.

### Representative database coverage figures (from Table 2)
- GFS (IMF): 85
- IFS (IMF): 40
- PSBS (IMF) 2/Mixed: 55
- GDD (IMF) 2/: 90
- Sovereign Debt Database (IMF) 3/: 115
- QPSD (WB-IMF): 100
- IDS (WB) Low- and middle-income: 1234/
- QEDS (WB-IMF): 125
- JEDH (BIS-IMF-OECD-WB): 125
- CPIS (IMF): 85
- CDIS (IMF): 110
- MFS-SRFs (IMF): 65
- LBS (BIS) 5/: 44
- CRS (OECD) 6/: ODA-eligible (141) 31

### KEY IMPLICATIONS AND POLICY RECOMMENDATIONS
- Strengthen public debt transparency through comprehensive, timely, and accurate reporting supported by a consolidated and updated government debt database within a DMIS.
- Integrate DMIS with government accounting systems to ensure consistency between statistics and fiscal accounts.
- Enforce strict internal controls with organizational separation between front office and back office roles.
- Develop straight-through-processing capabilities to mitigate operational risks.
- Adopt international standards (GFSM, PSDS, EDS) as a coherent reporting framework while addressing fragmentation and differences across external databases to improve comparability and completeness of public debt data.
- Encourage publication of a full set of disclosures (DMS, ABP, annual debt management report, issuance calendars, investor materials) and organizational/legal documents to support investor confidence and portfolio diversification.

*Source: EXECUTIVE SUMMARY, ppea2023038 — MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS—BACKGROUND PAPER (June 22, 2023).*

### EXECUTIVE SUMMARY

### ppea2023038 - EXECUTIVE SUMMARY

### INTRODUCTION
- Public debt transparency can provide significant benefits to borrowers and creditors.
- Enhancing transparency requires closing significant country data gaps and addressing adverse incentives.
- This Background Paper covers:
  - Empirical evidence of benefits of public debt transparency.
  - Sound practices in public debt management that promote transparency.
  - Review of international data standards and public debt databases.
- Date: June 22, 2023

### EMPIRICAL EVIDENCE OF BENEFITS OF PUBLIC DEBT TRANSPARENCY

A. Better Data Dissemination Practices Lower Financing Costs
- Greater data transparency reduces information asymmetries and uncertainty, which should translate into lower perceived risk and reduced financing costs.
- Participation in the IMF Data Standards Initiatives is a practical measure of countries’ level of data transparency; government debt data dissemination is integral to the Initiatives.
- The Tenth Review of the Data Standards Initiatives (approved 2022) encourages publication of more granular public debt data with detailed creditor breakdowns.
- Empirical findings (Gonzalez-Garcia, 2022):
  - Subscription to the Special Data Dissemination Standard (SDDS) is associated with a 10–14 percent reduction in the JP Morgan EMBIG sovereign spread index in the quarters following subscription.
  - Publication of data by e-GDDS participants via a National Summary Data Page (NSDP) is associated with a 4–6 percent reduction in the JP Morgan EMBIG sovereign spread index in the quarters following implementation.
  - These favorable effects are more pronounced in countries with relatively weaker governance.

B. Public Debt Transparency Promotes Diversified Investor Base
- Debt managers influence debt portfolio resilience through composition and characteristics, notably maturity, currency, and investor base diversification.
- Accessing international capital markets and attracting nonresident investors requires detailed, timely, accurate, and comprehensive information (e.g., prospectuses, regular publications).
- Well-functioning domestic markets with recurring issuance enable debt managers to lengthen maturity and rely on fixed-rate domestic securities, reducing refinancing, interest, and exchange rate risk.
- Empirical associations:
  - Improvement in public debt transparency (IIF ranking) is closely linked to reductions in investor base concentration measured by HHI, CR, THI, and ECI.
  - In some cases, a unit improvement in public debt transparency is associated with a 2.5 - 7.3 percent reduction in investor base concentration.
- Examples:
  - Brazil: domestic currency stock 95 percent of total; average time to maturity 4 years.
  - Hungary: domestic currency stock 80 percent of total; average time to maturity 5 years.
- Recommended disclosures for sovereigns borrowing regularly from international markets include regular publications of:
  - Debt management strategy (DMS)
  - Annual borrowing plan (ABP)
  - Debt management report
  - Investor presentations
  - Debt bulletins
  - Issuance calendar
  - Debt statistics
- Organizational and legal documents (borrowing powers, governance framework, institutional structure) should also be publicly available.

### SOUND PRACTICES IN PUBLIC DEBT MANAGEMENT PROMOTING TRANSPARENCY
- Transparency and accountability in public debt management strengthen credibility and mitigate investor uncertainty in normal and crisis times.
- Key channels to enhance transparency:
  - Legal framework
  - Overall fiscal framework
  - Institutional arrangements
  - Organizational structure
  - Operating framework
  - Management information systems
- Legal and control measures:
  - Borrowing authority is commonly subject to controls and transparency safeguards (e.g., legal restrictions on sources, purposes, debt ceilings, annual borrowing resolution).
  - Legal obligations should include regular submission of public debt statistics and annual publication of DMS, ABP, and report on previous year’s public debt management operations with evaluations.
  - Periodic “in-year” public debt statistics should include debt position, explicit contingent liabilities, portfolio composition, risk indicators, terms and conditions on new borrowings, auction results, collateral, and fees.
  - Disclosure of new borrowings can be catalogued via a National Gazette or Council of Ministers’ legal documents for long-term record-keeping and cross-reference.
- Audit and oversight:
  - Public disclosure of external audit reviews by the supreme audit institution (e.g., Auditor General) strengthens accountability.
  - Audited annual financial statements are the principal means for reporting to the legislature on debt position; financial compliance audits examine reliability and integrity of reported indebtedness and adherence to laws and regulations.
- Institutional arrangements and roles:
  - Transparent allocation of mandates among the public debt management office, ministry of finance, and central bank reduces conflicts between debt management and fiscal/monetary policy.
  - Clarity on roles and instruments reduces misinterpretation of policy signals and supports operational independence for public debt managers while ensuring internal controls.
- Organizational structure and communication:
  - Consolidation of public debt management functions in a public debt management office (DMO) can enhance efficiency and timely, comprehensive reporting.
  - Establishing a sovereign investor relations office promotes transparency via investor-friendly dissemination and stakeholder engagement.
  - Where responsibilities are dispersed, coordinated reporting and a middle office to monitor overall public debt portfolio are advisable.
- Coverage and reporting of contingent liabilities:
  - Requesting fiscal reports from the entire public sector, including corporations controlled by government direction on spending or borrowing, reduces incentives for off-budget activity.
  - Ministries of finance, public debt managers, central banks, or statistical agencies should have legal powers to obtain debt and guarantee information from subnational governments and other public sector entities to publish consolidated public sector debt positions regularly.

*Source: EXECUTIVE SUMMARY, ppea2023038 — MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS—BACKGROUND PAPER (June 22, 2023).*

### 16.      Public debt transparency through comprehensive, timely and accurate reporting could

### 16.      Public debt transparency through comprehensive, timely and accurate reporting could

### Debt Management Information System (DMIS): core functionalities and integrity
- DMIS should capture the creation of a debt instrument including commitments and any enhancements or cancellations.
- DMIS should cover all relevant cash flows across the “loan cycle” that include disbursements, prepayment or buybacks, debt service payments, fees, exchanges, and arrears.
- Organizational separation is required between the front office that records the initial debt creation and the back office that confirms the debt liability to ensure a high degree of integrity based on strong internal controls.10
- Straight-through-processing capabilities of the DMIS that allows for automatic settlement, payment and registry of debt related transactions further mitigates scope for operational risks.
- DMIS should be fully integrated with the government’s accounting system to ensure consistency between public debt statistics and fiscal accounts.

### International statistical standards for public debt
- Main international standards: Government Finance Statistics Manual (GFSM), External Debt Statistics (EDS): Guide for Compilers and Users, 2013, and Public Sector Debt Statistics (PSDS) Guide for Compilers and Users.
- Frameworks are derived from the System of National Accounts 2008 (2008 SNA) and Balance of Payments and International Investment Position Manual (BPM6).
- Definitions of sectors, instruments, and residence are consistent between the different statistical manuals.
- For external public debt, the EDS/BPM6 methodology: external debt includes all liabilities as defined in the SNA 2008 (excluding equity liabilities and investment fund shares, and financial derivatives and employee stock options) that are owed to non-residents; the total amount of such liabilities is presented as the gross external debt position.
- External government (public) debt as reported in the EDS will conceptually be the same as external government or public debt reported in GFS/PSDS.
- Metadata should specify valuation and coverage of debt instruments as well as information on country specific data sources and compilation practices.9
- PSDS Guide and GFS Manual provide methodology for reporting domestic public debt.

### Summary of provisions in international standards (selected items from Table 1)
- Debt Data: Monthly/quarterly reports on outstanding debt stock; composition by currency denomination, maturity, and interest rate; domestic and external debt statistics.
- Fiscal reports: balance sheet containing all debt and liabilities; summary table with gross debt at nominal and market value by type of instrument, original and remaining maturity, currency, type of interest rate, residency of creditor.
- Memorandum tables could present: Net debt; Arrears by type of arrear and type of debt instrument; Reconciliation between opening and closing stock positions; Publicly guaranteed debt by maturity and debt type; Summary of explicit contingent liabilities and net obligations for future social security benefits.
- Disclosure of aggregate information: information supplied by entities outside CG will not be separately disclosed and will only be published in the form of statistical aggregates (except explicit permission).
- EDS 2013 encourages additional data on remaining maturity, market valuation (or nominal valuation), type of creditor, currency structure, future debt service of the external debt, and other attributes of external debt.

- Institutional coverage tiers in standards:
  - Basic practice: Central Government / Central government.
  - Good practice: General government; liabilities beyond main financial obligations.
  - Advanced practice: All Public Sector, including public corporations and by subsector; presentation for public sector and publicly guaranteed debt.

- Debt instrument coverage:
  - Basic practice: Main financial obligations; all debt—securities and loans.
  - Good/Advanced practice: Liabilities including debt instruments and other contractual liabilities (trade payables, lease contracts, financial liabilities related to PPPs, equity of public corporations, liabilities from insurance/pension/standardized guarantee schemes).

- Static framework disclosure should include PDM legal framework, organizational structure (including governance framework, DMO structure, delegation of responsibilities), and design of debt instrument.

- DM Strategies and operations disclosure:
  - Medium-Term Debt Strategy Document (DM objectives, macroeconomic environment, evaluation of debt stock, key risk factors).
  - Annual report on outcomes of the DM strategy disclosed to Parliament and the public (with material operations, derivatives statistics, and rationale for their use).
  - DM operations in primary market (borrowing plans and terms and conditions of new issues).

### Public debt databases: coverage and characteristics
- There are at least fifteen publicly available databases for public debt data (Table 2).
- Some databases focus explicitly on debt (e.g., Quarterly Public Sector Debt—QPSD); others have government debt series (e.g., GFS and IFS).
- Some databases provide partial information: CPIS (for bilateral cross-country exposures for portfolio securities but not loans and no domestic component); MFS (for debt held by domestic financial sector).
- Two databases are creditor-reported: BIS Locational Banking Statistics and OECD Creditor Reporting System.

- Key observations from the overview:
  - Public debt data are fragmented across databases and across institutions (the Fund, World Bank, other IFIs).
  - While nearly all databases aim to have universal country coverage, actual availability of data falls short of this.
  - About half of the databases cover total government debt—both external and domestic, while the remaining half focuses only on government external debt.
  - In most cases, the databases aim to cover all levels of government.
  - QPSD is the most comprehensive public debt database but does not include a composition by creditor type.
  - Most databases include breakdown of public debt data by instrument, following the PSDS guide, but not always (for example, GFS includes only debt securities and loans, while the full breakdown includes SDRs, currency and deposits, insurance/pensions/standardized guarantee schemes, and other accounts payable).
  - Breakdown by creditor is requested in more than half of the databases, but definitions vary and availability of data is limited.
  - The World Bank’s IDS database is the most comprehensive database of long-term, public external debt with breakdowns of aggregate external debt data by individual creditor; data are sourced from the loan-level data collected in the World Bank’s DRS. While loan-by-loan information is confidential, aggregated data including the stock of public external debt and debt service data by creditor type and by individual creditor countries are published. Information on average commitments and average loan terms by creditor type and creditor country for each individual debtor country and debtor type is published.
  - There is no single database that provides data on total public (general government) debt for all countries with desired breakdowns; differences in coverage and concepts and variety of reporting frameworks can lead to inconsistencies across databases along with duplication of effort for countries reporting to these databases.

### Representative database coverage figures (from Table 2)
- GFS (IMF): 85
- IFS (IMF): 40
- PSBS (IMF) 2/Mixed: 55
- GDD (IMF) 2/: 90
- Sovereign Debt Database (IMF) 3/: 115
- QPSD (WB-IMF): 100
- IDS (WB) Low- and middle-income: 1234/ (note: table notes indicate constructed or conditional coverage)
- QEDS (WB-IMF): 125
- JEDH (BIS-IMF-OECD-WB): 125
- CPIS (IMF): 85
- CDIS (IMF): 110
- MFS-SRFs (IMF): 65
- LBS (BIS) 5/: 44
- CRS (OECD) 6/: ODA-eligible (141) 31

### Key implications
- Strengthening public debt transparency requires comprehensive, timely, and accurate reporting supported by a consolidated and updated government debt database within a DMIS.
- Integration of DMIS with government accounting systems, strict internal controls with organizational separation between roles, and straight-through-processing capabilities are important operational measures to reduce risks and ensure consistency between statistics and fiscal accounts.
- International standards (GFSM, PSDS, EDS) provide a coherent reporting framework, but fragmentation across multiple international databases and differences in coverage and definitions pose challenges for comparability and completeness of public debt data.

*Source: IMF staff summary of chapter "MAKING PUBLIC DEBT PUBLIC—ONGOING INITIATIVES AND REFORM OPTIONS—BACKGROUND PAPER," p. 10–15.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023038.pdf_